Report
EUR 8.70 For Business Accounts Only

Pioneer Cement Limited: Rising coal prices may put pressure on margin; Neutral

  • We revise down our earnings estimates for Pioneer Cement Limited (PIOC) by 15-34% over FY18-20E incorporating (i) actual earnings of 1HFY18, (ii) 4-11% upward revision in coal prices estimates, (iii) tweaking sales volume, and (iv) delay in upcoming expansion (2.5mn tons). 

  • Consequently, we revise down our DCF-based TP for PIOC by 13% to PKR72 and amend our stance on the scrip by one notch from ‘Buy’ to ‘Neutral’ owing to declining earnings and rising leverage. 

  • Although we expect the upcoming projects of the company to be value accretive, we believe, increase in leverage in medium-term (from 13% in FY17 to 50% by FY19E) may stretch the payback period of the projects thus delaying the positives emanating thereon. 

  • PIOC posted EPS of PKR1.41/sh in 2QFY18 down 23%/60% QoQ/YoY (1H: PKR3.25/sh), mainly due to higher fuel cost leading to 7/12ppt QoQ/YoY drop in gross margins to 27% in 2Q).

  • PIOC is currently trading at a premium to industry average (FY18E P/E of 8.1x is at 3% premium while EV/ton of USD104 is at 7% premium to industry).

Underlying
Pioneer Cement Ltd.

Co. is engaged in the manufacture and sale of cement and clinker.

Provider
BMA Capital Management Limited
BMA Capital Management Limited

​BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.

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